Gold and The Dollar Can’t Have It Both Ways

Traders in different markets seem to be singing from very different hymnbooks today.

Gold was smacked around by analysts’ interpretation that the Fed statement was quite hawkish to which we reply: “Huh?”

Apparently FOREX traders were of a different mind, driving the euro up against the dollar by almost 1.00%, although the dollar did gain about 0.33% against the yen. (Note: We warn again about the seriousness of the Japanese debt crisis.)

The big drop in the dollar was good for West Texas Intermediate crude oil, which at one point was up by 1.79% before settling back to a 1.5% gain.

The yield on the U.S. 10-year T-bill was up only marginally, a move more mechanical than anything. The bond yield ticks its small ticks as investors weigh investment options in other high-grade bonds.

U.S. and Asian equities were down, mostly on bad news. That bad news is connected to a solid revenue-reporting season but poor performance in earnings. Today’s U.S. losses were led by information technology stocks like Apple. Over on the NASDAQ, biotech stocks dragged the index down.

But what about this “hawkish” read of the statement issued by the Fed? We think nothing has changed and wonder what the fuss is about. If we were forced to make a call, we’d say it’s even slightly more dovish than the previous minutes of the FOMC meeting in March.

Today’s release of data concerning a further decline in weekly new unemployment claims certainly dinged gold. The filings were the lowest since the year 2000. Remember Y2K? Seems an eternity ago.

Additionally, consumer spending rose last month by 0.4%, a big jump, but given that January and February were pathetically anemic the figure doesn’t seem to presage a surge in inflation.

The gold market can be characterized fundamentally today as a mini-bus plastered with stickers, all of them saying “If.” If’s may cause rumors and scares, but rumors will be dispelled in time and facts will take their place. We’ve all known for over six months that  rate hikes are coming.

The key is not “when,” but “how often” and “how much.” We turn to another source to make our case.

"Ultimately the determinant for sustained price direction [in gold] will come from the rate hiking cycle once it is underway," said London-based Standard Chartered Bank analyst Nicholas Snowdon.

Wishing you as always, good trading,